London 19/10/2022

The US dollar performs a remarkable come-back today after two days of pressure and it is approaching the weekly open price. The market’s investing sentiment has had lots of ups and downs lately and this is a sign of nervousness and uncertainty. Since the US economy does not have any important announcements this week, all eyes are turned to the next interest rate decision of the Fed on November 2nd. The most likely scenario is a 0.75% hike, which has a 95% probability according to the FedWatch tool. The stock indices had a very good performance in the last two days but today things have changed and a strong correction pushes the indices lower. It is very interesting to mention the rally of the bond yields as the US 10-year bond yield is currently at 4.07% which is its highest rate since 2008. Commodities such as gold and oil are also bearish, following the strength of the dollar and the concerns of a global recession. In Europe, important announcements have been released as we’ll see below in the EURUSD and GBPUSD sections. According to Reuters, the EU’s leaders’ summit plan is to propose a temporary cap on the price of gas for electricity generation at a level that will help bring down electricity prices. The war in Ukraine is a new phase as many media mention that the Russian occupation authorities are leaving Kherson.
EURUSD (current price at 0.9775) is still mildly bullish this week although today the dollar performs a strong bullish reaction, taking back all the uptrend of the last two days. Earlier today, the Eurozone inflation was released for September at 9.9% vs the 10% that the markets expected. Markets reacted immediately with a drop in EURUSD as they assess that the need for continuous big interest rate hikes by the ECB is not so strong and that the divergence between the Fed and ECB may further open. The economic sentiment in Eurozone and Germany was negative but it was better than expected and this fact gave the euro some credit yesterday. A possible further strengthening of the dollar may bring EURUSD to the price zone of 0.9630 which is the major local support.

GBPUSD (current price at 1.1231) had a bullish Monday but the two following days (including today) are bearish and the pair has a retracement from the weekly highest price at 1.1440. The important announcement of the UK inflation was released today and the rate of 10.1% was well higher than the 9.9%of the previous month. The inflation returned to a 2-digit figure and this development should help the sterling to recover but on the contrary, GBPUSD is moving lower. It seems that the markets do not have any great expectations from the Bank of England for further aggressive actions as a possible recession in the economy does not allow it. Also, the UK is in a new & big government crisis as many Tory members are rooting for Prime Minister Truss’ replacement. If GBPUSD drops below 1.1150, the scenario of 1.10 has a good chance.

USDJPY (current price at 149.76) has almost reached the milestone price of 150 as the bulls prevail on the pair without end. The US dollar has returned to strength today, the bond yields rise sharply and the Japanese government along with the Bank of Japan do not change their views. Yesterday, a new stimulus package was announced with a potential target of 30 trillion yen, as the Chairman of the Policy Research Council of the Liberal Democratic Party Koichi Hagiuda said. This new stimulus package combined with the persistent decision of the Bank of Japan to maintain the ultra-loose monetary policy has caused the weakest yen in many decades. Many investors will stand at 150 if they see it as a selling opportunity but a solid breakout of 150 may cause more & stronger bullish trends.

DISCLAIMER: The information produced by a-Quant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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